Latest / Bull Market Conversations with Fexingo: Rallies, Momentum, and Riding Market Strength / Cloud Infrastructure Stocks Are Becoming a Bull Market Haven
Transcript
- Lucas: Luna, I’ve been staring at the Russell 2000 creeping up point nine percent over the past five days while the S&P 500 is basically flat and the NASDAQ is negative. But then you look at CrowdStrike up nine percent, Cloudflare up six, Datadog up three and a half, Shopify up three. These aren’t mega-caps — they’re mid-tier cloud infrastructure names with serious enterprise recurring revenue. Luna: It feels like a quiet rotation is happening. The market is saying: 'I don’t trust the broad rally, but I will pay up for companies that have sticky contracts and AI tailwinds.' Lucas: Exactly. CrowdStrike added a partnership with NVIDIA last week to embed AI directly into their Falcon platform for real-time threat detection. That’s the kind of catalyst that gets a stock re-rated. Their revenue is over eighty percent subscription-based, so the market sees that recurring stream as a safe harbor when the macro is uncertain. Luna: And Cloudflare is up six percent in five days. What’s driving that? They’re not just a content delivery network anymore — they’re building a full zero-trust security suite for enterprises. Lucas: Right. Their zero-trust network access product has been gaining traction with large companies that want to replace legacy VPNs. The revenue growth rate is still over thirty percent year over year, and they’re free cash flow positive now. That combination — growth plus cash generation — is exactly what the market is rewarding in this environment. Luna: So is this just a flight to quality? Or is there something more structural happening? Lucas: I think it’s both. On one hand, the broader market is waiting for the next catalyst — the Fed is done cutting for now at three point six five percent on reserves, GDP growth is just two percent annualized. On the other hand, these cloud infrastructure companies are benefiting from a structural shift: every enterprise is spending on cybersecurity, AI workloads, and cloud migration. That’s not going away. Luna: Datadog’s up three and a half percent in five days. They monitor cloud applications, so they’re a bellwether for cloud spending. What does their move tell you? Lucas: Datadog’s a great signal because their revenue correlates almost one-to-one with overall cloud infrastructure spending. When companies increase their cloud usage, Datadog sees it in their usage-based pricing model. A three and a half percent move in a week suggests that enterprise cloud budgets are still growing, despite the macro slowdown. Their last quarter showed thirty percent year over year revenue growth, and they raised guidance. Luna: Shopify is an interesting one — up three percent. They’re more e-commerce than pure infrastructure, but they’ve been pivoting hard to enterprise with Shopify Plus. Lucas: Shopify’s a hybrid. They have subscription revenue from merchants, but also payment processing fees. The stock has been volatile because of the shift from growth-at-all-costs to profitability. But their operating margin has improved dramatically — they’re now generating meaningful free cash flow. The market is rewarding that discipline. Luna: So the common thread is recurring revenue, enterprise stickiness, and improving profitability. That sounds like a playbook for a bear market too. But the S&P 500 is at seven thousand four hundred and four — near all-time highs. Are we actually in a bull market or just a narrow one? Lucas: That’s the key question. The S&P 500 has been driven by a handful of mega-cap tech names — Apple, Microsoft, NVIDIA — but the equal-weight index has lagged. What we’re seeing now is a broadening out, but only into specific pockets. The Russell 2000 is up point nine percent in five days, but it’s still down from its highs. So it’s not a broad-based bull market — it’s a selective one. Luna: And these cloud infrastructure names are the ones getting the flows. CrowdStrike now has a market cap over ninety billion dollars. That’s not cheap, but the market is willing to pay a premium for growth and visibility. Lucas: Their forward price to earnings ratio is around sixty-five, which is high. But when you look at the free cash flow yield, it’s actually reasonable for a company growing over thirty percent. The market is essentially saying: 'We trust that these recurring revenue streams will grow into the valuation.' Luna: Do you think this rotation could broaden further? Or are we stuck with a narrow market for the rest of 2026? Lucas: I think it depends on earnings. Q1 earnings season just wrapped up, and the results were mixed. Banks did well, but consumer discretionary was weak — Walmart’s premarket move today suggested some caution. If the next few quarters show that enterprise IT spending stays strong, these cloud names could continue to lead. But if we get a macro shock, the rotation could reverse. Luna: So the bull case for these stocks rests on the assumption that AI and cybersecurity are non-discretionary. Is that fair? Lucas: I think it’s becoming true. Cybersecurity is non-negotiable after the breaches we’ve seen. And AI is being pushed by every CEO. CrowdStrike’s partnership with NVIDIA is a perfect example — they’re embedding AI into the product. That’s a competitive moat. Cloudflare’s network is so distributed that it’s hard to replicate. These are real advantages. Luna: But Datadog faces competition from New Relic and Splunk. How do they maintain their edge? Lucas: Datadog has a platform play — they offer monitoring, logging, security, and now AI observability. Once a customer uses multiple products, switching costs are high. Their net revenue retention is over one hundred thirty percent, meaning existing customers are spending more. That’s a powerful engine. Luna: So the bull case is: these companies have pricing power, recurring revenue, and expanding product suites. What could go wrong? Lucas: Valuation is the biggest risk. If interest rates rise unexpectedly, high multiple stocks get hit hardest. The Fed funds rate is at three point six five percent, but if inflation picks up and they have to hike, these stocks could correct. Also, if enterprise IT spending slows — say, a recession hits — these companies would see growth decelerate. Luna: But we just saw the GDP print at two percent annualized. That’s not recession territory, but it’s not booming either. Lucas: Exactly. The macro is in a gray zone. The market is pricing in a soft landing, but if we get a hard landing, the rotation out of growth stocks could be violent. That said, the quality of these companies is higher than the growth stocks of 2021. They have real cash flow, real customers, real profits. Luna: So how should an investor play this? Buy the group, or pick one? Lucas: If you’re bullish on enterprise cloud spending, you could buy an ETF like IWF — the Russell 1000 Growth ETF — but that’s heavily weighted toward mega-caps. Alternatively, you can pick individual names. I’d focus on companies with the strongest competitive moats: CrowdStrike for security, Cloudflare for networking, Datadog for observability. Shopify is more cyclical, but if e-commerce rebounds, it could be a big winner. Luna: And what about Palantir? It’s up two percent in five days, but it’s a different beast — more government contracts, less pure cloud. Lucas: Palantir is interesting because they have a strong government business, which is stable, but their commercial AI platform is still early. Their stock has been volatile, moving on news of deals. The two percent move is modest compared to CrowdStrike. I think the market is treating it as a lottery ticket on AI adoption in the enterprise. Luna: So to summarize: the bull market is alive, but it’s not in the S&P 500. It’s in a select group of cloud infrastructure stocks that have recurring revenue, AI tailwinds, and improving profitability. The question is whether that can sustain itself. Lucas: Right. And I think it can, as long as earnings hold up. The next catalyst will be Q2 earnings in July. If these companies beat and raise, the rotation could accelerate. If they disappoint, we could see a sharp pullback. But for now, the momentum is on their side. Luna: And the data backs it up — CrowdStrike up nine percent in a week, Cloudflare up six. That’s not noise, that’s conviction. Lucas: Exactly. The market is voting with its dollars. And right now, it’s voting for cloud infrastructure. Luna: Well, we’ll be watching those Q2 numbers closely. Thanks, Lucas. Lucas: Thanks, Luna. Until next time.